Companies specializing in the sale and administration of healthcare plans have performed well through the last 12 months. Shareholders have seen some great returns as the need to cover emergency medical needs has increased, and Medicare and Medicaid programs have grown.
However, with the government having to tackle its budgetary debts further increases in such programs may be under threat. Here we look at the relative share valuations of two companies in this sector, comparing their recent share price performance, and suggesting the time is right to execute a pairs trade: Buy WellPoint Inc (WLP) vs sell UnitedHealth Group (UNH).
WellPoint Inc (WLP)
Shares are currently trading around $68, in the middle of their 52-week price range of $54.10 to $81.92.
Earnings per share for the last 12 months are $7.55, and these are expected to reach $7.72 in its next fiscal year (ending Dec 2012). These numbers place the shares on a trailing price to earnings ratio of 9.05 and a forward multiple of 8.85.
WLP paid a dividend of $1.00 last year, which was covered 7.5 times by its earnings. At the current market price, the payment of this level of dividend offers investors a yield of 1.50%. Current operating margin at WLP is 8.02%, and revenue per share as stated in its last income statement was $155.46. Revenues grew by 4.60% last quarter compared with the same period last year.
WLP holds cash of $19.56 billion, and has debts totaling $9.66 billion. Its debt to equity ratio is 39.95. Servicing its operations and debt, its operating cash flow through the last 12 months has been $3.37 billion. To continue reading, click here